Friday, November 18, 2016

The free market is a lie

Imagine you're a business process with some inputs and some outputs. You would want a very healthy competition in the market that supplies your input so you can get the best prices on your input. Meanwhile, you want the maximum possible margin for your outputs. Now, repeat this thought experiment throughout the entire supply chain and you will realize that competition and a free market is not a natural state of the economy. By natural, I mean the state toward which we would gravitate in the absence of outside forces. This is where regulation comes in. Because we realize that we cannot have perfect competition and a free market, we regulate. People will say "oh, get rid of all regulation" but we can't do that for every single business process in our entire economy at the same time. Getting rid of regulations in a few business processes is an inherently biased action. The free market is a lie.